Ag News

Ag News Roundup: ‘Farm Bust’ prediction creates a stir

The ‘farm bust’ predictions from the Wall Street Journal created quite a stir across media outlets. Here are a few articles you should read to keep informed of the opinions about farming.

The Federalist:How a ‘Farm Bust’ Could Help Renew American Agriculture: by Gracy Olmstead

The Wall Street Journal is predicting a farm bust on the horizon, as America’s role in the global grain market shrinks, and the price for corn continues to drop. Reporters Jesse Newman and Patrick McGroarty write

The Farm Belt is hurtling toward a milestone: Soon there will be fewer than two million farms in America for the first time since pioneers moved westward after the Louisiana Purchase.
This number definitely reflects a growing decline in farming. But what the Wall Street Journal doesn’t note is that the nation’s largest farms are only growing more powerful and large. We have fewer farms, yes, but largely because we have a greater share of larger, industrialized farms.

The WSJ interviewed a specific type of farmer for this article: the commodity crop farmer. Yes, they represent the greatest portion of farms in the American heartland. But many are also beginning to realize that government subsidies and cushy crop insurance premiums can’t save them forever: when their supply is abundantly overstepping demand, eventually reality is going to hit. And if this WSJ piece is any indication, reality is indeed about to strike.

How America’s Heartland Farms Are Hurting
As you read through the Wall Street Journal’s article, a general outline of the farmers interviewed falls into place: 50-plus years of age, farming more than 1,000 acres, dotted across America’s flyover country in states like Iowa and Kansas. They’re all struggling to make ends meet:

Across the heartland, a multiyear slump in prices for corn, wheat and other farm commodities brought on by a glut of grain world-wide is pushing many farmers further into debt. Some are shutting down, raising concerns that the next few years could bring the biggest wave of farm closures since the 1980s.
The U.S. share of the global grain market is less than half what it was in the 1970s. American farmers’ incomes will drop 9% in 2017, the Agriculture Department estimates, extending the steepest slide since the Great Depression into a fourth year.
Many of these farmers need a second career in order to keep their businesses afloat.

‘No one just grain farms anymore,’ said Deb Stout, whose sons Mason and Spencer farm the family’s 2,000 acres in Sterling, Kan., 120 miles east of Ransom. Spencer also works as a mechanic, and Mason is a substitute mailman. ‘Having a side job seems like the only way to make it work,’ she said. Continue reading. 

Five Thirty Eight: Big Farms Are Getting Bigger And Most Small Farms Aren’t Really Farms At All:

by Maggie Koerth-Baker

“If Kansas had an official state billboard, it might be a squat, square sign featuring a cornucopia of a paper grocery bag and the words “1 Kansas Farmer Feeds 128 People + You.” First erected in 1978,1 these signs make a simple and direct point: Every farmer who works the land produces the meals of many non-farmers. Which is why a lot of people were worried when, in 1986, the government predicted that the number of farms in the U.S. was set to fall by half.

That prediction was made by the Office of Technology Assessment in a 1986 report on the changing state of agricultural technologies. There were 2.2 million farms in 1982, the OTA wrote. There were likely to be 1.2 million by the year 2000.2 The idea wasn’t so much that food production would fall — those 128 people + you would still be fed — but that who they were fed by was changing. Farms were industrializing, consolidating — and midsize farms (of the Old-MacDonald, Farmer-in-the-Dell sort) would be the losers.

But here’s the weird thing: The OTA’s prediction didn’t come true. There were about 2 million farms in 2002, according to the Agricultural Census. There are still about 2 million farms today. At the same time, though, the OTA was right: Farm consolidation really did happen. How can both be true? The devil is in the methodology. These numbers don’t represent a failure of the OTA’s predictive powers, but rather a great example of how the ways we measure things can stop being effective. More importantly, this trend shows how a combination of inertia and political interests can make it hard to change a methodology even after it is clearly outdated.

Today, agricultural experts track farm consolidation by looking at things like distributions comparing the size of farms, the number of farms in each size category and the share of available cropland being used by each category of farm. A 2013 Department of Agriculture report, for instance, found that, in 2001, farms of 1,000 acres or more accounted for 5.6 percent of all farms and controlled 46.8 percent of all cropland.3 In 2011, those large farms still represented 5.6 percent of all farms, but now they controlled 53.7 percent of cropland. During that same time period, the number of very large farms — 2,000 acres or more — grew from 1.7 percent of all farms to 2.2 percent. In other words, a relative handful of big farms are getting even bigger, even though the amount of land being farmed stayed about the same.” Continue reading.

St. Louis Post-DispatchAgriculture traders feel pain as plentiful harvests persist

by Isis Almeida and Agnieszka De Sousa

“The era of excess in agriculture is squeezing traders dry.

Years of bumper grain harvests, coupled with low prices and diminished volatility in many markets, are making it tougher for the world’s biggest agriculture companies to make money buying and selling major crops like wheat, corn and soybeans. Now, firms including U.S. processor Archer Daniels Midland and Chinese food giant Cofco Corp. are restructuring or scaling back their ambitions.

During the commodity boom years, the industry thrived on price swings and expanded in a bet that profit would increase as population growth drove food demand. But after record-breaking production by top exporters like the U.S., Russia and Argentina, many markets are mired in surplus. Companies that operate vast global supply networks that deliver crops from farms to food makers now find themselves in a buyer’s market.

“When commodity prices are high, you generally have a high level of volatility and traders thrive,” said Philippe Chalmin, a professor of economic history at University Paris-Dauphine. “When markets are like they are today — very flat, very dull, without much volatility — there are far fewer opportunities for traders to earn a living.”

For companies focused on merchant trading, the pain is acute. Closely held Louis Dreyfus Co. reported its lowest profit in a decade last year. To raise cash, the Rotterdam-based company sold $426 million of bonds last month. It also agreed to sell a stake in a Brazilian joint venture to a Japanese farming group for $250 million, according to people familiar with the transaction.

Chicago-based ADM revealed Tuesday that “poor execution” led to a fourth-quarter loss — the second in the space of a year — at its international trading desk. That followed a series of high-profile departures in the past few months, including Victor Petzold, the company’s former head of global corn, and Frederik Groth, head of trading in Asia.” Continue reading.

Ag ProfessionalFed Reports Show Declining Farmland Values, Tighter Credit Conditions

by Keith Good

“On Thursday, the Federal Reserve Banks of Chicago, St. Louis and Kansas City each released updates regarding farmland values and agricultural credit conditions from the fourth quarter of last year. The Fed reports, which contained concerning news for farmers, came on the heels of USDA’s forecast that U.S. farm incomes will drop 8.7% in 2017, and on the same day that The Wall Street Journal ran a front page story titled, “The Next Farm Bust is Coming.”

David Oppedahl, Senior Business Economist at the Chicago Fed, explained last week in The AgLetter that, “Agricultural land values in the Seventh Federal Reserve District suffered a third consecutive annual decrease, yet the 1 percent decrease for 2016 was smaller than the 3 percent declines for the previous two years. ‘Good’ farmland values in the fourth quarter of 2016 were down 1 percent from the third quarter, according to 192 survey respondents from District banks.”

“However, this stretch of decreases has been much more moderate than the previous such stretch during the 1980s,” the AgLetter said.

Mr. Oppedahl pointed out that, “Since their 2013 peaks, Illinois, Indiana, and Michigan farmland values have experienced real declines of 11 percent, 7 percent, and 12 percent, respectively. Additionally, since their 2012 peak, Iowa farmland values have experienced a real decline of 15 percent. In contrast, Wisconsin agricultural land values have risen 4 percent in real terms since 2013.”

More specifically on credit conditions, the AgLetter stated that, “Non-real-estate farm loan renewals and extensions in the fourth quarter of 2016 were higher than in the fourth quarter of 2015, as 39 percent of respondents reported increases in them while only 3 percent reported decreases.

Moreover, the volume of the farm loan portfolio deemed to have ‘major’ or ‘severe’ repayment problems grew to 5.9 percent in the fourth quarter of 2016, matching the share in 2002 and the highest such proportion in 15 years.

“[S]urvey respondents forecasted the downward trends for farmland values and agricultural credit conditions to continue into 2017,” the report added.

Recall that last month, in the Fed’s Beige Book, the Chicago District pointed out that, “Farmland rents were also somewhat lower, but had not fallen as much as land values.” Continue reading.

The Wall Street Journal: Trade Punishment for Trump Voters, Protectionism is already hurting the Farm Belt.

“President Trump meets with Shinzo Abe on Friday, and one subject is sure to be trade. The Japanese Prime Minister may be too diplomatic to say it, but someone should tell Mr. Trump the damage that his trade policies are already doing to the rural and farm-state voters who put him in the White House.

This year the U.S. is expected to export $134 billion in agricultural goods, from pork to nuts to corn and much more. Exports contribute about 20% of U.S. farm income, and U.S. agriculture ran a $19.5 billion global trade…” continue reading.

We were able to get fertilizer on our pastures before the rains, such a rare accomplishment in the South in February. Have a great week.

-Melissa Beck

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